OPEC Considers Extending Production Cuts
June 2, 2020
OPEC is trying to move the date of the meeting up so they can decide sooner rather than later to extend production cuts and offer support to the market. It looks like the meeting will be held on the June fourth, move up from the original date of June ninth. It seems that Saudi Arabia is on board for an extension of current cuts for one to six additional months. Russia at this time has not totally committed to the extension but with it looking as if the meeting will get move up, they must be very close to a commitment. The efforts to move the date of the meeting and extending the cuts has rallied the market. Demand has been coming back as state open and if supply can continue to get restrained it will provide the market a reason to rally. Currently WTI crude oil is trading $36 and Brent crude oil is at $39. A push of a few more dollars higher will bring some producers to the market to hedge their production. As has been discussed many times the breakeven for US shale producers is across the board but WTI near $40 will provide an opportunity to hedge production at a profit. Getting production hedged would allow these producers to bring production back up and add barrels to supplies.
OPEC+ has a tough job as they want to support prices but not get them too high which brings back US production. It is likely that they extend the cuts one to three months and monitor the situation very closely to try and keep crude prices near $40.
Bank of America Global Research expects US oil production to fall out 2 million bpd by the fourth quarter of 2020 compared with the fourth quarter last year. It believes North American oil shut ins peaked in May and will recover now that oil prices have increased above breakeven prices. It also expects lower capex and high shale decline rates to eventually takeover, driving US oil production lower.
USDA said 245 million bushels of corn was used for fuel alcohol in April, down from 440.5 million a year ago. It said 1.014 million tons of ethanol byproducts dried distillers’ gains of DDGs produced in April, was down from 1.858 million a year ago.
HollyFrontier Corp said it would convert its petroleum refinery located in Cheyenne, Wyoming into a renewable diesel production plant, as it looks to expand its renewables business. The conversion will result in the company ceasing petroleum refining and reducing the workforce at the refinery.